HONG KONG & TOKYO--(BUSINESS WIRE)--Oasis Management Company Ltd (“Oasis”) is the manager to funds that are minority shareholders of Fujitec Co., Ltd. (6406 JP) (“Fujitec” or the “Company”) and has submitted shareholder proposals for the Company’s upcoming annual general shareholders’ meeting (“AGM”) to cancel the Company’s treasury shares.
Fujitec is one of the largest elevator and escalator manufacturers in the world. Yet, the Company trades on average at less than one-third of the valuation of its international competitors, as shown in Table 1. Analysts cite management complacency, inefficient capital allocation, operational inefficiencies, and poor governance, as among the reasons for this disconnect in valuation. Oasis believes that Fujitec has the potential to out-compete these higher-valued competitors, given the chance to do so.
Table 1 |
||||
|
Fujitec |
Otis |
Schindler |
Kone |
EV/EBITDA Adj. for Treasury Stock |
5.5x |
12.8x |
14.1x |
22.2x |
Price to Book Ratio |
1.2x |
5.4x |
6.3x |
12.6x |
*All data as of May 21, 2020 |
||||
The root of Fujitec’s issues is the hold that the founding Uchiyama family has over the Company. Although the Uchiyama family owns just a 5.6% stake in Fujitec, the Company has been run with little regard for its other shareholders or the vision to grow to achieve its potential. The time has come for all minority shareholders to call for a fundamental change at Fujitec and insist on management with a vision to emerge from Fujitec’s recent doldrums by transforming the Company’s governance for the benefit of all shareholders. This is especially true in light of the increasing threat of competition from third-party maintenance contractors in its home market. Fujitec’s management must be shaken from their lethargy and act urgently to secure the Company’s future.
Oasis has attempted to engage constructively with Fujitec for years, but management has been intransigent, which has ultimately led us to submit formal shareholder proposals. It is a testament to the Company’s stubbornness that other investors are also publicly calling for change at Fujitec, and the Company must take notice.
Oasis had planned a major public campaign focusing on multiple shareholder proposals, including the replacement of the Company’s president, Mr. Uchiyama, improvements in capital allocation, and abolishment of the poison pill. However, in light of the challenges presented to the Company by the COVID-19 crisis, Oasis recognized that the necessary changes at Fujitec will take even more time, and as so at this time has submitted shareholder proposals with respect to only one issue: the cancellation of treasury shares, which amount to 9.98% of Fujitec’s shares outstanding.
Among other changes, Oasis has long requested privately that these idle treasury shares be cancelled, which would improve shareholder value. In response, the Company has said that it retains its treasury stock and large cash balance for M&A purposes. However, based on a number of meetings we have had with Fujitec’s management, we sensed that they have little true appetite to pursue any further M&A.
Further, despite a large cash balance more than sufficient to take advantage of the recent lower prices to pursue M&A, Fujitec appears not to have taken the opportunity of the market dislocation to pursue any acquisitions, missing a historic opportunity to do so at attractive prices. Taking Fujitec’s claims of intent to pursue M&A at face value requires answering the question, if not now, when would Fujitec find more attractive opportunities to grow inorganically?
Finally, even if Fujitec really did intend to pursue M&A, Fujitec has substantial cash reserves and access to debt capital to fund any M&A, should such opportunities arise in the future. We see no reason why Fujitec should remain among the small minority (approximately 11%) of Japanese companies that hold treasury shares of over 9.9% of shares outstanding.
In its statement opposing Oasis’s shareholder proposals, the Company says that holding onto its treasury shares will give the Company flexibility in the future for financing and M&A. Yet, the Company has not tapped its treasury shares for those purposes even once over the past 17 years. The cancellation of these shares will immediately enhance corporate value, without any cost to the Company.
Further, the Company says that the determination of capital policy including the cancellation of treasury stock is not for resolution at the AGM, but rather, at the discretion of the Board of Directors. Oasis recognizes that Japan’s Companies Act allocates, as a default rule, the authority to cancel treasury stock to the Board of Directors. However, this default rule is premised on the Board of Directors acting appropriately as a governing body to promptly and flexibly determine the timing and necessity of treasury stock cancellation to promote corporate value, as opposed to the (less frequent) shareholders meetings. Unfortunately, Fujitec's Board of Directors has consistently failed to act to promote corporate value. Therefore, regrettably, we have no choice but to submit these shareholder proposals to our fellow shareholders, as envisioned by the Companies Act, to enable shareholders to make determinations to cancel treasury stock by amending the articles of incorporation. We hope that in this way, we may assist Fujitec’s Board of Directors in fulfilling its responsibility to the Company.
We trust that all shareholders looking to improve Fujitec for all stakeholders and grow its long-term corporate value will vote FOR the Oasis proposals to cancel the Company’s treasury shares.
A strong vote for these proposals will send a message to management that they are accountable to all stakeholders, not just the Uchiyama family. We believe that Fujitec is primed to be a great company if only its management would embrace that same vision. Japanese companies are embracing corporate governance changes and engagement with stakeholders like never before. Fujitec must not be left behind. We view this as just the first step in the long road to further improving Fujitec into the world-class company that it can, should, and will be.
About Oasis
Oasis Management Company Ltd. manages private investment funds focused on opportunities in a wide array of asset classes across countries and sectors. Oasis was founded in 2002 by Seth H. Fischer, who leads the firm as its Chief Investment Officer. More information about Oasis is available at https://oasiscm.com. Oasis has adopted the Japan FSA’s “Principles of Responsible Institutional Investors” (a/k/a Japan Stewardship Code) and in line with those principles, Oasis monitors and engages with our investee companies. Oasis is by no means soliciting or requesting shareholders to jointly exercise their rights (including, but not limited to, voting rights) together with Oasis, and Oasis disclaims its intention to be deemed or treated as a Joint Holder (kyo-do hoyu-sha) with other shareholders under the Japanese Financial Instruments and Exchange Act by virtue of its act to express its view and opinions or other activities to engage in dialogue with other shareholders. In addition, Oasis is by no means soliciting or requesting other shareholders to grant or deliver their proxies to Oasis for any upcoming AGM. Oasis is not and should not be considered to solicit, encourage, induce, or seek from any shareholders to authorize Oasis or any other third party as their proxy in exercising their voting rights on their behalf.